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G20 summit: UK lending to tighten further

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  • 28/06/2010
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G20 summit: UK lending to tighten further
World leaders have agreed to force banks to hold higher levels of capital on their balance sheets, which would further constrain lending in the UK.

The Telegraph reports sums as big as £130bn will have to be found by UK banks already struggling to both find funds to lend and follow the 8% of capital Basel capital requirement.

All heads of state and finance ministers at the Canadian summit fully endorsed the move, including UK Chancellor George Osborne.

The G20’s final communiqué said: “The amount of capital will be significantly higher, and the quality of capital significantly improved, when the new rules are fully implemented. This will enable banks to withstand, without government support, stresses of the magnitude associated with the recent financial crisis.”

Since the finance crisis hit, British banks have already bolstered balance sheets by £127bn, largely funded by tax payers, according to Bank of England figures.

Lenders will also be required to offer “higher quality capital”, according to Osborne, like simple shares to stop banks avoiding their obligations.

The British Banker’s Association (BBA) said the agreement has struck the right balance between countries that have already progressed on this issue and those yet to begin.

BBA chief executive Angela Knight, added: “The big question has been one of the timeframe: the more capital the banks are holding, the greater the limit on what they can lend. The G20 statement clearly recognises, as we all do, that the new measures be phased in over a time frame which safeguards economic recovery and the ability of markets to provide funding to individuals and business customers.

“We agree with the G20 that a great deal has been accomplished on the road to regulatory reform. There is an enormous amount of detailed work being undertaken in the BBA and elsewhere to determine what the future capital regime should look like, and how best to balance the need to deliver to individuals and businesses a guarantee of greater bank stability while also providing them with the funds they need. It is critical to get this detail right.

“We welcome the G20 leaders’ pragmatic approach, and pledge to work with their authorities to deliver a more robust and reliable banking system for the future.”

Analysis has shown that the next stage of proposed global changes to bank capital due in 2012, known as Basel III, will also have a significant impact on the economies of most countries.

 

 

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